The Malta Independent 29 February 2020, Saturday

Malta Financial Services Authority begins ‘transformative journey’ through reform

Kevin Schembri Orland Thursday, 31 January 2019, 14:12 Last update: about 2 years ago

The Malta Financial Services Authority (MFSA) today saw the basis for its reform agenda launched.

During a press conference held this afternoon, Chief Executive Officer Joseph Cuschieri unveiled MFSA’s Vision 2021, setting out the Authority’s mission and strategic vision underpinned by a set of goals and objectives. A consultation document on the MFSA’s FinTech strategy was also published, proposing the introduction of a ‘Regulatory sandbox’ and Innovation Hub.'

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Prime Minister Joseph Muscat addressed the event, and said that these documents reaffirm the MFSA's commitment in safeguarding and developing financial services sector.

"What we are sure of is that this institution works, and does take the appropriate measures when faced with challenges.  The regulator has been accused of being too lax or too harsh, sometimes by the same critics.  As a country we will continue to strengthen the institutions. We will continue to listen and act on constructive ideas, like those made by Venice Commission and will continue to act on recommendations by the IMF," Muscat added.

"I must mention the banking sector.  A sector which is facing a new environment emanating from increased pan-EU supervision.  It is clear that Malta needs more banks to service growing economy and offer customers alternatives and a more efficient service.  While supporting de-risking efforts, one cannot tolerate a situation where banks simply opt not to open accounts to legitimate individuals and businesses, which I would say is in breach of EU rules."

"Banks need to be prudent but pro-active. They need to be engines for growth and not safety deposit boxes.  This duty does not fall on one particular bank but on all eco system."

Through Vision 2021, the MFSA has set the blueprint for its mission to enhance its position as a forward-looking, proactive and trustworthy supervisory authority with one clear purpose - safeguarding the integrity of markets and maintaining stability within the financial sector, Joseph cuschieri said.

The vision document also articulates the Authority’s approach to risk management, conduct, enforcement, and Anti-Money Laundering (AML)/Counter-Financing of Terrorism (CFT) supervision.

Cuschieri said: “The MFSA’s Vision 2021 is the start of a transformative journey supported by an ambitious change programme focused on innovation, investment in FinTech and RegTech, modernisation of supervision, and technological development. Our reform agenda includes an overhaul in our organisational and governance structures to enable the Authority to meet its future challenges more effectively”.  

Cuschieri said that in the 25 years that the MFSA has been regulating the financial services sector, “our role has grown exponentially to become the single financial services regulator. After such a long period, it is time to evolve, modernise and look ahead with a sense of achievement but at the same time, it is equally important to learn from our experiences so that we take on board lessons learned.”

Describing the changes, Cuschieri said that the MFSA will further invest in the development of human capital. He also said that the authority will invest in the latest supervisory technology, business intelligence and knowledge management tools, highlighting that this will become mission critical to the success of the MFSA and Malta as a jurisdiction. “This is key to unlock our potential and improve our efficacy as a European financial services supervisor. We cannot talk about FinTech hubs, FinTech strategies, Malta as a centre of excellence and Blockchain but at the same time shy away from making the necessary investment. Our new technology strategy will make the MFSA a European role model in the application of the latest technologies.”

As for organisational changes, the CEO said that the MFSA will shortly unveil its new organisational structure and a number of key organisational changes. “These changes are designed to strengthen our governance structure but also streamline our organisational structure with clearer lines of responsibility and accountability, eliminating unnecessary bureaucracy where possible, but also adding new critical functions such as research and innovation, a dedicated FinTech team, risk management, strengthening of financial crime compliance and business intelligence.”

In terms of stakeholder engagement, the CEO said that they plan to engage more with their peers at European level on many fronts to contribute in sectoral reforms.

He said that the authority’s vision statement is essentially “recalibrating our level of ambition but also unveils a set of values which will guide our supervisory decisions and our corporate culture.”

These values, he said, are integrity and trustworthiness where the authority will act fairly and objectively,

In terms of FinTech, he said that across the spectrum of FinTech companies, “from innovative startups to established global financial institutions seeking competitive advantage via increasing adoption and deployment of technology, the focus on investment in financial services technology has never been greater. Global corporations are adopting multiple strategies to deliver on these challenges and opportunities, such as incubate, invest and collaborate. Our aim is to provide a tailored approach to authorisation for innovative firms. Such a tailored approach may include the provision of pre-application support to firms, or authorising them with restrictions, in order for such firms to test their business models and products in a controlled environment. Our strategy aims to build on our success to date, by working with new and existing companies to capture additional financial technology investment and help drive increased investment, entrepreneurship and employment across the industry. Similar to other major financial services regulators, the MFSA is currently assessing viable solutions to nurture innovation and facilitate the industry’s access to FinTech.”

Parliamentary Secretary for Financial Services Silvio Schembri also spoke at the event, and spoke about the FinTech strategy.  He highlighted the challenges this new economic niche holds. He said that it paves the way to establish Malta as an international FinTech hub.

The Financial Regulator has been the main player in sustaining growth of financial services in Malta. Today, the MFSA is responsible for more than 2,300 livence operators, he said, all of different sizes.

He said that the drive towards new areas of growth, like FinTech, was pushed by the government.

He announced that in coming days a consultative body is being created and will serve as a forum of discussion between government, the regulator and practitioners to help understand difficulties, and formulate a 10 year strategy for financial services sector in Malta.

"Let change be the rule, rather than the ruler. Change is inevitable."

The Vision 2021 document for the MFSA mentions that the authority is  currently restructuring its organisational structure with the aim of “[i] addressing supervisory fragmentation; [ii] streamlining the organisational structure; [iii] ensuring efficacy in the decision-making process; and [iv] addressing supervisory gaps, as well as, eliminating duplication of supervisory processes. The proposed changes will strengthen our governance by providing for clear lines of responsibility and accountability of individual directorates in the execution of the Authority’s remit.”

The document highlights that it is being proposed that the Educational Consultative Council (ECC) should be reformed. Whilst retaining its current remit – that is to: [i] identify gaps in existing skills required by the financial services sector; [ii] provide support in relation to training programmes offered primarily by its members and other entities within the finance industry; [iii] promote careers within the financial services sector; and [iv] maintain a website to provide up to date information in this regard – it is proposed that the ECC should also be tasked with addressing the educational gap at all levels, including but not limited to the available qualifications in financial services (university degrees, diplomas, certificates, etc.) and the identification of new areas where education is necessary, particularly with regards to the areas of innovation identified, such as FinTech and RegTech, amongst others. In this regard, the ECC will be collaborating with the University of Malta and possibly other educational institutions in order to develop the necessary programs of studies to strengthen knowledge in the field of financial services.

“It is also being proposed that an ‘Academy of Excellence for Financial Supervisors’ is established to provide a yearly curriculum to train young and upcoming financial services supervisors,.

The MFSA is also undertaking a Business Process Reengineering (BPR) project to define internal standards and policies; to remodel internal processes in order to improve efficiency and efficacy; to adjust remits, handbooks and task descriptions; to update organisational structures and define new functions; to enhance internal communication; to enhance business intelligence and risk management; in workflow management and business continuity; in data and document management; and to enhance cross-unit collaboration.

The document also highlights that the authority is in the process of publishing an Anti-Money Laundering Supervisory  Strategy.

The document also highlights a number of other upcoming changes. The MFSA shall be replacing its website with a new more user-centric website. In addition, the MFSA is proposing to implement an interactive rulebook, similar to those implemented by the European Banking Authority.

The MFSA is also implementing state of the art supervisory technology. “This technology, commonly termed SupTech, will assist the MFSA to automate certain processes and effectively make the supervision of licence holders more efficient. Furthermore, data analytics, for example, can assist the Authority in detecting abuses, as well as handling, complex issues, problems and investigations.”

The Authority also intends to issue ‘Guidelines on cybersecurity for regulated entities’ with the aim of enhancing licence holders’ cyber-resilience, particularly for firms which are reliant on technology. The proposed guidelines will set out the Authority’s minimum expectations with regard to how entities should be addressing cyber-risk and the necessary safeguards which they should have in place.

The document also reads that the MFSA is currently working on a strategic plan focusing on short and long term strategies.

The plans, the document reads, focus on enhancing the core functions of the MFSA, that is, the authorisation, supervisory and enforcement functions within the MFSA. “The strategic plan will seek to enhance our risk-based approach to supervision to enhance the efficiency of our operations and increase market confidence. Whilst it is difficult to achieve a zero failure regime, our strategic plan will seek to enhance our effectiveness in preventing and detecting any misconduct in the market.”

Firms operating within the financial services sector will be asked to participate in the consultation process.

 

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